At a glance it seems an impossible puzzle to solve... There are more of us, living longer - yet our pension funds are finding it harder to find investments which will grow sufficiently strongly, to make the money we need later.
Nouriel Roubini (nicknamed Doctor Doom for predicting the Global Financial Crisis) hosed us down with a torrent of chilling economic facts - for an hour. Ranging from currency and trade imbalances, systemic failures, sick banks, stagnant politics, to the risk of nuclear war. A lovely, personable man face-to-face - but don’t hire him for a children’s party - unless it’s Halloween.
For those trying to provide us (we lucky few) with our incomes in retirement, the result of that bad news and uncertainty can be boiled down into three big effects : low interest rates, sluggish growth and an increase in (doubtless well-meant) regulation which is putting up costs, at the same time as discouraging some forms of investment. Investing and getting great returns is now less certain. And yet great returns are what we need for the larger number of us living so long.
I can’t tell you in detail what happened at the conference - for the very good reason that delegates have come here for a bit of a confessional, to share ideas, and to find partners.
I won’t betray that need for privacy.
But I can, I think, give you a general impression that this is an industry which is being reborn - as so often happens during a time of crisis. And I heard again the fact-let that the Chinese character for “crisis” is a combination of the brushstrokes for “danger” and “opportunity”. These fund managers, investors and other allied trades are looking for the opportunities out of this - and there is some good news for pensioners at the end of it.
But no guarantees as to what income you’ll get in retirement. That seems plain. Arguably, insisting on a guarantee in any case forced investment managers to be more conservative than they need be - costing pensioners money in the end.
Get used to a poorer future, then? Well, we have to be more realistic, sure - and save more - but there is an appetite by the pensions industry to provide something better than just taking money from workers’ pockets and providing an uncertain something in the future.
So after a period of throwing their hands up, and saying “I can’t make the maths work” - allowing Defined Benefit pensions (where promises are made about your retirement income level) to shut and their wholesale replacement with Defined Contributions pensions (where no such promise is made) - now the search is on for a sustainable third way.
Regulation often stymies that - still designed for an old fashioned environment of either DB or DC, and little else. Lack of experience-sharing is also a culprit. There are many different systems across the West, with solutions and ideas which might be useful, applied elsewhere. The hunt is on now to find and share those solutions.
About time too. Since the conference I have heard professionals admitting that the old two-horse (DB/DC) system was way out of date, long ago - but comfortable, and relatively effective when the Western economy seemed to be doing effortlessly well.
A final observation - more made in conversation than in conference...
Governments - lambasted here for their tight or unimaginative regulation - have a role to play, think most. Not as a provider of a catch-all, or catch-the-poorest, state pension - but certainly in sponsoring a default or benchmark pension fund (like NEST in the UK) by which other pension schemes may be measured - to keep the industry competitive and honest.
Maybe it was Stockholm Syndrome - but I must say I did come away from this gathering impressed at how hard these people work - and how prepared they are for harder work in the future.
The EPI Summit was organised by Marcus Evans